The Economy

U.S. Wholesale Stocks Climb 0.3% in January

The unexpected increase suggests "plenty of inventory pain remains in the pipeline," with inventory growth continuing to outstrip sales growth.
Matthew HellerMarch 9, 2016

U.S. wholesale inventories rose unexpectedly in January as sales tumbled, suggesting that inventory overhang will continue to be a drag on economic growth.

The Commerce Department said Wednesday that wholesale stocks increased 0.3% after being unchanged in December. Economists polled by Reuters had forecast inventories falling 0.2% in January.

Sales declined 1.3%, extending December’s 0.6% drop. The weak sales pace in January means it would take wholesalers 1.35 months to clear shelves, the highest inventory-to-sales ratio since April 2009, when the economy was in recession.

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“Plenty of inventory pain remains in the pipeline,” Michael R. Englund, chief economist at Action Economics, told Reuters. “Wholesale inventory growth has beaten sales growth since mid-2014 to leave a steep inventory-to-sales ratio spike that is usually only seen in recessions.”

Economists, though, are not particularly concerned that the high inventory-to-sales ratio may signal a recession, noting that the increase had been fueled by a rise in the stocks of nondurable goods like drugs, paper, and farm products.

In addition, Reuters said, strong consumer spending and a firmer housing market, against the backdrop of a tightening labor market, are keeping the economy on steady ground.

“We take limited signal on the overall economy from such an outturn,” said Jesse Hurwitz, an economist at Barclays in New York.

Inventories are a key component of gross domestic product changes. The component of wholesale inventories that goes into the calculation of GDP — wholesale stocks excluding autos — edged up 0.1% in January.

Wholesale drug inventories rose 3.3% in January, while sales slipped 0.2%, leaving the inventory-to-sales ratio for that segment at its highest level since March 2005.